PwC's Private Company Trendsetter Barometer tracks the business issues and best practices of privately held US growth businesses. This quarter's report incorporates the views of 201 chief executive officers (CEOs/CFOs): 114 from companies in the product sector and 87 in the service sector, averaging $272 million in enterprise revenue/sales, and including large, $500M-plus private companies.

NEW YORK, Jan. 22, 2013 /PRNewswire/ -- PwC US's Private Company Trendsetter Barometer survey found that in the fourth quarter of 2012, privately held businesses selling internationally, especially those in emerging markets, forecast higher growth rates than private companies that sell solely in the United States. The projected growth rate for these international Trendsetter companies rose to 9.3 percent (up from the third quarter's 8.5 percent). Private companies selling in the key emerging markets of China, India, and Brazil forecasted an even higher 9.7 growth rate for the next 12 months.

Taken as a whole, however, the Trendsetter companies we surveyed in the fourth quarter (including domestic-only companies) said they expected a decline in their rate of growth for the next 12 months. Their expected rate of growth fell to 7 percent, down from 8.6 percent reported in the third quarter and 8.5 percent reported a year ago.

"We see uncertainty about the fiscal cliff clearly reflected in domestic-only private companies' outlook in the fourth quarter," says Ken Esch, a partner with PwC's Private Company Services practice. "Despite the legislation passed at the beginning of the year, many of the private companies we work with continue to feel uncertain. There's a sense among them that Congress is not beyond spending cuts and taxes that could impact their businesses further."

For example, as the United States worked to reach a fiscal cliff deal before the end-of-year deadline, the projected growth rate for private companies that sell solely in the United States dropped to 5.1 percent, down from 8.6 percent in the previous quarter and 7.5 percent a year ago. The numbers are not all bad though — we're still seeing pockets of aggressive growth: Despite the overall decline in the expected rate of growth for Trendsetter companies, most (80%) do expect to see some growth in the next 12 months, with nearly one-third (29%) predict aggressive double-digit growth.

Unsurprisingly, optimism levels for the US and global economies remained muted in the fourth quarter. Just one out of four (25 percent) international private companies said they were optimistic about the global economy, similar to a year ago (24 percent). Private-company optimism about the US economy showed little change at 42 percent, compared with 44 percent in the previous quarter and 39 percent a year ago. Almost as many Trendsetter companies were uncertain about the US economy (40%) as they were optimistic.

The following graph shows Trendsetter companies' optimism about the US and world economies, today and over the past several years. Notably, the paths begin to diverge around the time that the Eurozone crisis re-intensified.

The following graphic shows a further breakout of private companies' economic sentiments and growth projections for the next 12 months. Alongside that data are Trendsetter projections and sentiments from the prior quarter and from this time last year.

"Much as they dislike ongoing uncertainty, private companies have been operating in this environment for several years now," says Esch. "They fully understand that they can't table growth initiatives indefinitely while they wait for greater certainty about the US economy and fiscal policy. As a result, we've seen many private companies turn to fast-growth markets abroad in an effort to buffer weakened demand and uncertainty at home. International Trendsetter companies expect to outperform the overall economy, and they consistently show they're willing to spend more to drive growth."

Private Companies Continue Spending; Bank Loan Activity Picks Up

More than two-thirds (67%) of Trendsetter companies plan to increase their operational spending over the next 12 months. International private companies, especially the 48 percent selling in the emerging markets of China, India and Brazil, remain well ahead of their domestic-only peers in this regard. More than three-quarters (79 percent) of Trendsetter companies operating in China, India and Brazil plan to increase operational spending, compared with 74 percent of international companies overall, and 61 percent of domestic-only companies.

Information technology continues to rank at the top of the list of spending areas for Trendsetter companies overall (reported by 28 percent), though fewer companies plan to increase their IT spending compared with those reporting that intention a year ago (40 percent).

"Increasingly, we see technologies such as social media and cloud computing offer private companies opportunities to do more with incremental budget and to engage customers in new ways," says Esch.

Additional top areas of increased spending include new product or service introductions (27 percent) and marketing and sales promotion (23 percent).

The breakout of private companies' top spending areas is shown below.

Top Five US Private-Company Prospective Spending Areas, 4Q12

4Q12

3Q12

4Q11

Information Technology

28%

31%

40%

New Product or Service Introductions

27%

31%

29%

Marketing & Sales Promotion

23%

23%

25%

Facilities Expansion

22%

24%

24%

Geographic Expansion

22%

21%

23%

International private companies also lead their peers in planned major capital investments over the next 12 months: 47 percent of international companies operating in emerging markets are planning to invest in major capital projects, versus 42 percent of international companies overall and 27 percent of domestic companies.

As private companies continue to plan increases in their operational spending plans, they're also increasing their banking activity, with 14 percent of private companies reporting financing activity in the fourth quarter of 2012 (up three points from the previous quarter). Twelve percent reported new bank loans, with the mean interest rate paid on loans by these companies hitting a low of 3.46 percent, 44 basis points below a year ago (3.90 percent).

"Private companies are taking advantage of improved balance sheets and interest rates to take on additional debt and re-invest in their business," says Esch. "International private companies, especially, are taking a more aggressive approach to future growth. Businesses that take calculated risks now should be better poised to seize opportunities when the economy turns the next corner."

The majority of private companies (56 percent) are planning net new hiring over the next 12 months, up one point from the previous quarter and two points higher than a year ago. A notable uptick is planned in the number of new hires — Trendsetter companies' average composite workforce is expected to grow by 2.8 percent over the next year, up from 1.6 percent forecast in the prior quarter. This is the highest planned increase in the panel's average composite workforce since the third quarter of 2008, when it was 3.6 percent.

"As private companies expand their operations, growing their workforce will be crucial to continuity of service," says Esch. "As reported in previous surveys, finding the right talent can be challenging, so strategic planning in this area, in terms of employee development and maintaining a pipeline of candidates, is key to businesses' scalability and resilience."

Additional Barriers to Growth

Lack of demand remained the most-cited barrier to business growth over the next 12 months, cited by 70 percent of private companies, off slightly from 74 percent last quarter. Forty-nine percent of panelists said legislative/regulatory pressures might be a barrier, down three points. The percentage of those concerned about increased taxation rose nine points to 42 percent, as the United States neared its deadline to avoid the fiscal cliff.

The breakout of private companies' top barriers to growth in the fourth quarter is shown below, along with comparative data from the third quarter and from one year ago.

Top Five US Private-Company Barriers to Growth, 4Q12

4Q12

3Q12

4Q11

Lack of Demand

70%

74%

71%

Legislative/Regulatory Pressures

49%

52%

50%

Increased Taxation

42%

33%

32%

Profitability/Decreasing Margins

32%

29%

30%

Lack of Qualified Workers

27%

29%

24%

"Despite persistent headwinds, private companies are making strategic investments in their firms, with international companies leading the charge," says Esch. "The demand for new products and services in new geographic markets is out there. The challenge for private companies is to place their bets astutely."

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